COMMENTARY: The DOL ESG Rule: A Chilling Effect on ESG, but a Rollback Is Likely

Abstract

Just before Election Day 2020, the Trump Administration’s Department of Labor (DOL) issued a final rule, “Financial Factors in Selecting Plan Investments,” intended to limit the consideration of environmental, social, and governance (ESG) investing criteria in ERISA-governed retirement plans. The rule is a weaker version of the proposed rule, which was overwhelmingly opposed in public comments, but it is, nonetheless, likely to sow doubt among retirement-plan fiduciaries over how to appropriately consider ESG criteria. This chilling effect fulfills the DOL’s original intent of keeping ESG considerations out of retirement plans. The Biden Administration’s DOL is likely to roll back the final rule, returning to something like the “all things equal” standard and clarifying that ESG considerations may be part of fiduciary duty. <b>TOPICS:</b>ESG investing, long-term/retirement investing, legal/regulatory/public policy <b>Key Findings</b> ▪ The rule is intended to limit the consideration of ESG criteria in ERISA-governed retirement plans. ▪ While weakened in response to public comments, the rule will have a chilling effect on plan fiduciaries considering ESG, which was largely its intent. ▪ The Biden Administration’s DOL will likely roll back the rule, returning to the “all things equal” standard and clarifying that ESG considerations may be considered part of fiduciary duty.